Thursday, March 28, 2024 | Ramadan 17, 1445 H
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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

A roller coaster six months leaves US economic recovery uncertain

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WASHINGTON: As businesses shuttered and millions hit the unemployment line last spring, the most dour predictions saw the United States heading for another Great Depression of spiralling collapse and years of massive joblessness.


The worst has been avoided.


But new academic research and commentary this week from Federal Reserve officials suggest the path of the US recovery remains much in doubt, and the programmes approved last spring to buffer the economy from the pandemic may still be in for their stiffest test.


Cash that households socked away over the summer from rich unemployment benefits will begin to run dry; small business loans appear to have limited bankruptcies and closures so far but were not designed for the long haul; Federal Reserve programmes that helped unlock a massive round of private corporate financing may have left companies with difficult-to-service debt if business does not fully rebound.


“Given the magnitude of the economic downturn triggered by the pandemic, we still face the possibility of a coming wave of credit downgrades and defaults,” authors including Jeremy Stein, a Harvard University professor and former Fed Governor, warned in a paper being presented on Thursday at the Brookings Institution, one of several which spelled out the risks facing the US economy in the coming months.


After its emergency credit programmes allowed companies to sell a record $1.7 trillion in corporate bonds to private investors through August, the Fed may have to rescue those markets if the bonds start to go bad, or risk the sort of financial crisis that has so far been avoided, the authors wrote. The problems may not spool out all at once. But heading toward winter, when epidemiologists fear the spread of the virus will accelerate, renewed health fears may curb spending, make businesses less likely to hire and invest, and even prompt new restrictions — a phase the UK is entering, and which other European nations may face as case counts rise. Boston Fed President Eric Rosengren said the steps taken so far “would have been fine if the pandemic lasted three months, but the pandemic isn’t lasting three months.”


“My baseline is that the pandemic gets worse this fall and winter,” he said on Wednesday.


“Some parts of the country will do a lockdown or people will choose to do so...Either way it is going to result in a decrease in economic activity,” he added. — Reuters


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